5 Rocket Stocks to Buy After the Selloff - views

BALTIMORE (Stockpickr) -- Last week's price action in the broad market was a gut-punch for anyone who owns stocks. Thursday alone was the biggest one-day drop in the S&P 500 since all the way back in November 2011.

And Wednesday's reaction to the Fed's latest public statement was the worst since Sept. 21, 2011, when the market dropped 2.94%. Those aren't exactly the kinds of records that investors have been hoping for this summer.

From a technical standpoint, Wedesday's drop was meaningless -- but Thursday's selloff was a very big deal. The selling shoved the S&P's price down below the price channel that it's been trading within since November. In short, that means that stocks are likely to correct for a little while at best.

To cope with the correction, we're turning to a new set of best-in-breed Rocket Stock names this week.

For the uninitiated, "Rocket Stocks" are our list of companies with short-term gain catalysts and longer-term growth potential. To find them, I run a weekly quantitative screen that seeks out stocks with a combination of analyst upgrades and positive earnings surprises to identify rising analyst expectations, a bullish signal for stocks in any market. After all, where analysts' expectations are increasing, institutional cash often follows. In the last 205 weeks, our weekly list of five plays has outperformed the S&P 500 by 79.35%.

2013 has been a strong year so far for Kohl's (KSS). Shares of the big box department store chain have rallied almost 18% since the calendar flipped over to January, significantly outperforming the rest of the market. The firm's model is built off of selling well-known brand names at moderate prices to middle income consumers through its 1,150 stores. Kohl's value focus makes it a defensive retail name for the start to this summer.

There's a lot that differentiates Kohl's from your typical department store. First off, product exclusivity is paramount -- around half of the firm's sales come from private labels or brands sold exclusively at Kohl's. That, in turn, gives the firm bigger margins and more defensible profitability. So do the firm's store locations: Unlike most of its peers, Kohl's doesn't typically anchor mall locations, cutting its overhead and helping the firm follow through on its cost focus.

Moats are relatively shallow in the retail business, but Kohl's unique positioning gives it much bigger advantages than the typical department store. That fact shines through to KSS' balance sheet too. Financially, Kohl's is in good shape, with a $4.5 billion in debt and a half billion in cash sitting on its balance sheet; that's a comfortable amount of leverage for the industry, especially with free cash flows north of $2 billion on tap this year.

While retail isn't without its risks right now, the defensive bent at KSS makes it stand out.

Affiliated Managers Group

If Kohl's is having a strong year, Affiliated Manager Group (AMG) has managed to do one better in 2013. Shares of the asset manager are up close to 23% over the same timeframe, besting the broad market by 11%. AMG is a very unique financial sector name -- the firm doesn't actually manage money itself. Instead, Affiliated Managers holds ownership stakes in a collection of small to midsized boutique investment managers.

That fractured nature of AMG's business is attractive because it gives the firm exposure to a broader basket of expertise than a holistic firm ever could. While that does mean that costs are higher than they would otherwise be (leadership roles like investment strategists are replicated at each firm, rather than centrally), it also means that there isn't a single investment edict decided at the top, which gives AMG the ability to spread risk across less correlated strategies. The well-regarded nature of AMG's portfolio firms gives it a big advantage, particularly as stocks continue to recover -- it means that the firm can collect bigger fees.

Make no bones about it, AMG is in many ways a ramped up bet on the equities market. And while that carries some risks as this rally cools off in June, increasingly hefty exposure to alternatives should offset that risk with bigger fees and bigger gains in market rough patches.

We're buying the dip in shares of this Rocket Stock this week.

Sina

Chinese internet giant Sina (SINA) has made leaps and bounds in grabbing internet users in the People's Republic over the last few years. The firm owns a leading news portal as well as Weibo, a platform that's been called the Chinese version of Twitter.

The one-two punch of a popular news portal and social media site make Sina especially valuable for advertisers looking to capture the valuable (and burgeoning) Chinese middle class consumer. Because Sina's user base skews wealthy and educated, it's able to command higher advertising fees for its space. Weibo has been a huge growth driver for Sina since it was launched in 2009. Currently, there are more than 500 million Weibo accounts on the service.

While the threat of increasing regulation in a country not known for its online freedoms could squeeze Weibo's user-base, the site ultimately remains the best platform for microblogging, however flawed it may be. Newly imposed restrictions will impact all Chinese social media sites equally. Meanwhile, SINA's debt-free balance sheet sports more than $1.1 billion in cash and investments, giving the firm ample dry powder to buy more traffic generation brands going forward.

Humana

Health insurer Humana (HUM) is one of the biggest healthcare firms in the country -- but its "insurance" label is a bit of a misnomer. Around 75% of Humana's members are actually covered by government-sponsored plans, with Humana as the plan administrator. By becoming the go-to expert in programs such as Medicare and Medicaid, HUM has carved out an attractive niche.

Size matters for plan administrators like Humana. The firm's scale gives it the ability to invest in complex infrastructure to control healthcare costs, and it gives the firm leverage with providers, which in turn helps to boost the value proposition HUM can sell Uncle Sam, as well as the firm's own bottom line. Obviously, hefty reliance on government programs is a double-edged sword for firms such as Humana. On the one hand, it provides extremely reliable revenues for the firm with large expected growth in users, but on the other hand, any changes from the government could slam HUM's business model.

A backstop of employer-sponsored insurance plans takes some of the risks away from Humana's overreliance on Uncle Sam, but it doesn't provide the same sort of moat that HUM has in the government side of its business. But the growth potential from a quickly aging population in the U.S. helps to offset a lot of that risk. In the immediate-term, rising analyst sentiment in shares is our reason for betting on shares of this Rocket Stock.

Green Mountain Coffee Roasters

Last up is Green Mountain Coffee Roasters (GMCR), a stock that's been on an absolute tear this year. In just under six months since the first trading session of 2013, shares of the Vermont-based coffee company have rallied 80%. And with momentum names holding up extremely well during the market's most recent correction, it makes sense to take another look at GMCR in June.

Green Mountain isn't just a coffee maker; the firm owns the extremely popular Keurig brand of single-serve beverage brewers. Keurig's machines use self-contained K-Cups to make coffee, teas and other drinks in seconds per cup. The brewer's popularity has been breakneck in recent years, as K-Cup caddies adorn seemingly every home and office kitchen in North America. Sure, Keurig may be a "fad" at this point -- but aren't the fad stocks exactly the ones that you want to own on the way up?

K-Cups offer a sticky revenue stream for Green Mountain. Because they're proprietary, the firm can command premium pricing for them. And because the firm can offer new, diverse drink choices (like hot cocoa or iced coffee), it's able to drive sales among its large base. I've said before that Starbucks' (SBUX) decision to renew and expand its deal with GMCR is a big indication that SBUX's rival Verismo brewer isn't destroying Keurig's share of the market. Quite the contrary.

There isn't a big value argument in Green Mountain. This stock is the definition of a growth stock, and the valuation metrics reflect that. Even so, this stock hardly sports the multiple that it once saw, and that hefty price tag for this Rocket Stock is becoming more easily justified each day. This week, we're betting on shares.

At the time of publication, author had no positions in stocks mentioned.

Jonas Elmerraji, CMT, is a senior market analyst at Agora Financial in Baltimore and a contributor to TheStreet. Before that, he managed a portfolio of stocks for an investment advisory returned 15% in 2008. He has been featured in Forbes , Investor's Business Daily, and on CNBC.com. Jonas holds a degree in financial economics from UMBC and the Chartered Market Technician designation.